How your student loans get treated if you file for bankruptcy in Kansas or Missouri depends on the type you choose and, sometimes, where you file.
In Chapter 7
Whether you file a Chapter 7 in Kansas or Missouri, you still have to list all of your federal and private student loan debts. Once you receive the order of discharge, most of your debts will be wiped away. But with student loans, you would need to file a lawsuit within your bankruptcy called an adversary proceeding to eliminate them.
Despite what you may have heard or read, it is possible to eliminate student loans in Chapter 7 bankruptcy. But it’s not easy. You would have to show that the student loans create an “undue hardship”. What that means depends on how the court looks at the facts but means the court will look at your current budget and your future to determine if you could afford to repay the loans. For most healthy, young people who file for bankruptcy, students loans will survive. But people with chronic health conditions, those on social security disability, and others who have hardships might have some success wiping away some of their student loan debts.
In Chapter 13
For most people, student loans are debts that would be paid over 20-30 years, long after Chapter 13 plans finish. That means that they are long-term debts and can be treated specially in Chapter 13 plans.
In Kansas Chapter 13 cases, we can propose to take money that unsecured creditors would receive (companies like utilities, credit card companies, and hospitals) and pay all of that towards student loans. We prefer that because it recognizes the reality that student loans are different than these other debts. Student loans typically survive bankruptcy discharge whereas other debts do not.
In Missouri, though, the courts do not let us treat student loan debts better – or worse – than regular unsecured creditors. So we can propose a few options. We can lump in student loans with other unsecured debts and pay them a percentage of plan payments. That will usually work, but it often leaves student loans accumulating interest during the 3-5 year plan. We can also propose to pay them the regular monthly payment during the plan. But that would generate trustee fees and those monthly payments sometimes rise or fall depending on several factors. That can lead to a lot of confusion and uncertainty.
What Do I Do With My Student Loans in My Bankruptcy: Conclusion
Student loans are difficult debts to deal with because of their special status as debts that aren’t automatically eliminated in bankruptcy. Because of this, we have to pay special attention to student loans during bankruptcy and afterward.
If you have student loans and are thinking of filing for bankruptcy, please reach out to us for help so we can discuss what we can do to help. We may even have options for helping our clients after bankruptcy with student loans. WM Law is Here to Help!